Barely a year after they were readying to ride the crest of the light commercial vehicle market with their Japanese marvels-on-wheels, the light truck industry's latest entrants face a bumpy road.

advertisement

Palakunnathu G Mathai

May 15, 1986

ISSUE DATE: May 15, 1986

UPDATED: January 31, 2014 11:01 IST

Barely a year after they were readying to ride the crest of the light commercial vehicle (LCV) market with their Japanese marvels-on-wheels, the light truck industry's latest entrants face a bumpy ride.

Costs have soared, price calculations have gone haywire and truck manufacturers have marked up price-tags in show-rooms. Yet profit margins have been mercilessly squeezed. Customers have cancelled bookings, sales projections have nosedived, and at least one firm has deployed production staff in its marketing department and faces problems with ancillary suppliers who are no longer assured of large orders.

That is a grim scenario, and the principal actors in this drama are DCM-Toyota, Allwyn-Nissan, Swaraj Mazda and Eicher Motors. The villains of the piece - the soaring Japanese yen (up 40 per cent in the last seven months) and the Government (which slapped on higher excise and customs duties in the budget). Reacting sharply to the levies, Mitsubushi (Eicher's Japanese collaborator) Managing Director M Ueda said at a press conference in Delhi some weeks ago: "The rules of the game have been changed at the halfway stage." Echoed Harpal Singh, Hindustan Motors vice-president for marketing: "If the Government's objective is to promote new technology, it has to nurture it. It has reversed the process it set in motion."

Costs have soared, price calculations have gone haywire and truck manufacturers have marked up price tags in show-rooms. Yet profit margins have been mercilessly squeezed.

The new LCV companies have been lobbying the Government against the taxes, but officialdom has so far remained unmoved. An Industry Ministry official said last fortnight that the higher customs duties(up from 25 per cent a few years ago to 50 per cent now), were meant to force companies to reduce imports of components from Japan and speed up indigenisation. But industry executives argue that the Government has already vetted the pace of their indigenisation programmes, and that since they are sticking to the agreed schedule, the extra tolls are unfair. For good measure, Maruti Udyog Managing Director R.C. Bhargava contended that it took up to two years for component suppliers to update their technologies for the new vehicles, so that there was "no direct relationship between customs duty and indigenisation."

The mounting din is understandable. Taxes account for Rs 85,000 in DCM-Toyota's new price of Rs 1.80 lakh, raised from Rs 1.55 lakh. The cost of other companies' vehicles too has shot up by Rs 30,000 and more. Manufacturers have passed on most of the additional burden to customers, absorbing some to stay in the market. DCM-Toyota would have had to charge almost Rs 2 lakh if it had passed on the full cost escalation to buyers, a price dangerously close to that of a heavy duty truck. Inevitably, most manufacturers have had to cut costs.

But sales remain depressed. Allwyn-Nissan hoped to sell 3,000 trucks in its first year of operation, but industry sources say it has managed less than 1,500, and a company spokesman said he could meet the target only with Government help. Swaraj Mazda is doing no better, and DCM-Toyota may at best achieve 75 per cent of its initial target. Warned Allwyn-Nissan Managing Director, C. Shesbagiri Rao: 'If the Government does not intervene to end the stagnation, the industry may face a recession that will affect the economy."

Recession may be too strong a word, but there is little doubt that that LCV sales will stay in low gear. Inder Singh, Swaraj Madza's dealer in Delhi, reports that orders have slowed down by 40 per cent after a price rise in early April. DCM-Toyota had one-third of its 15,000 bookings cancelled, and many who did not cancell their bookings are nevertheless not taking delivery either.

Some lay the blame for the bind the LCV companies are in at the manufacturers' doors. Says Singh of Hindustan Motors: "Their vehicles are over designed to take higher loads. It's like designing a bullock-cart and ending up with an elephant. That's why they can't cut prices." He also refers to a survey report that 65 per cent of LCVS are not overloaded, a conclusion that is heresy to the new companies, which swear just the opposite. Says Subodh Bargava, chief executive, Eicher group of companies: "Any apprehension of overdesign is misplaced. The price relates to the high technology, which is more efficient."

Meanwhile, savage fights for market shares are in the offing. Older LCV manufacturers have obviously not been hit by the soaring yen. And their lighter pay-load vehicles are cheaper than the new vehicles. Market leader Bajaj Tempo's vehicle is priced at Rs 95,000 and the company has been highlighting its cheaper spares. Moreover, established companies like TELCO have launched a vehicle in the Bajaj range and Hindustan Motors could follow suit, TELCO is also believed to have other models of LCVS in the works, signalling a clear segmentation of the market.

There could also be a glut because of the rapid increase in manufacturing capacities despite stagnation in sales. Two years ago the industry comprised three companies licensed to produce 35,200 vehicles a year. Last year, this jumped to 1.05 lakh when another five threw their hats into the ring and Bajaj Tempo doubled capacity. A lot of the additional capacities have yet to go on stream but the wars will get bloodier unless demand surges significantly.

DCM-Toyota's Executive Director Vivek Bharat Ram believes that it will in the long run and points out that despite all the problems, his customers have been regularly repaying bank loans: indicating that they are making money. The railway network may function more efficiently, but it will be at a diminishing rate. "That is why I'm bullish that demand will catch up. It's a question of who will take up the challenge," he says. Eicher's Bhargava adds that the new trucks were the last to enter most countries but captured sizeable market shares in five years.

For all the brave talk, however, most of the new entrants are hedging their bets. DCM-Toyota is branching out into dumpers, ambulances and small buses in an effort to diversify. Allwyn-Nissan has crane carriers, ambulances, concrete mixers and tankers on its anvil, while Etcher too may explore similar avenues if the going gets too tough in LCVS. The consensus is that all the companies may have to exercise such options in the short run. With the Government unwilling to do a rescue act, LCVS have a rough road ahead of them. Whether the shakeout that is common to fledgling industries lies on that road is now the big question.

Get real-time alerts and all the news on your phone with the all-new India Today app. Download from